Fraud Trends During COVID-19 & What Businesses Need to Know
July 23, 2020
COVID–19 has changed a lot about how we interact, purchase and work. Because many have been quarantined, and because stores have changed how they interact with shoppers, online has become a preferred way, and for some, the only way to shop for items.
For instance, in April of this year, according to Adobe Analytics, online grocery saw a 100% increase in traffic, online electronics saw 60% and online book sellers saw an increase of 100%. However, with all this comes an increase in fraud. For instance, Mastercard noted a 680% increase in suspicious account creation and a 40% increase in high risk purchases. Transunion reported that fraud was growing at a rate of 4 times what they expected.
Recently, Acuant’s Jose Caldera sat down with Lisa Lechner, Chief Compliance Officer at Mercari, Joshua Hall, Sr. Fraud and Recovery Manager at Mezu, and Amanda Ortega, Chief of Regulatory Affairs and Compliance at Prime Trust to talk about these trends, and how top companies are dealing with them.
What They Are Seeing
The basic patterns of supply and demand are changing. Pre COVID, many people listed a wide array of items that they didn’t use. These may be items that they purchased or ones that they received. However, post-COVID, there has been a shift to household items often related to cleaning and protecting against the virus. That means more staples like hand wipes, toilet paper, hand sanitizer as well as others like masks are taking the place of items that would be selling in more normal times. These items are highly desired and were driving increased traffic and sales volumes, that have led to, for sites like Mercari, a two-fold increase in listings. And in many cases, these items come with price gouging. Fraudsters seeing an opportunity would quickly purchase these items at retail, constraining supply locally and in some cases beyond, and then charged prices far above the norm. In some states, price gouging is defined as prices 20% above normal. During the pandemic, some prices are far and above that level.
And there have been increases in elder abuse as a way to get a product without paying for it. This may take the form of someone stealing the credit card of someone in the household in order to make a purchase. When it comes time to verify the transaction, they may try to thwart the image match process by taking a picture of their relative asleep. Trying to trick image match processes also takes the form, as Mezu noted, of face swap software that puts the face of a fraudster into an otherwise legitimate ID.
Payment method “testing” is also a tactic that the panelists have been seeing in the marketplace. This is where a fraudster will use a payment method and increase the charge amount each time. In the meantime, they may vary the payment frequency and switch between payment types to try to hide their trail. The panelists also noted that fraud seems to be moving downscale from high ticket items to lower value goods. One of the side effects of that transition is that it leaves businesses with a tough choice. Fight the fraud and lose money on that transaction either way or just accept it and lose money as a result.
What They Are Doing to Stop Fraud
- First you need to understand the changes in market behavior, and model appropriately. The webinar that led to this discussion came, in part, from a question: why are people buying so much perfume? Is it because they want to smell good, or is it fraud? Ultimately, fraud is based on smart people and smart systems trying to understand patterns so they can prevent fraudsters from stealing. However, as those patterns change, the advantage switches to the fraudsters. And in this pandemic the patterns have changed with more lower dollar value transactions of household goods taking a prominent place in the cycle. In looking at these changes, compliance teams can better understand what the new baselines are and frame up the models to better combat the fraudsters.
- Next you need to operationalize the process in an AML platform like Acuant Compliance. With the increased volume and the changing patterns, automation can play a strong role in making fast and accurate decisions on the bulk of the transactions coming in. Setting rules is key for the automated transactions that get approved, declined or sent to manual review for an analyst to review. For Mercari, this meant creating over 140 rules to combat price gauging. And for those situations where a transaction needs manual review, strong case management means that it gets to an analyst with all the information to make an informed decision. And queue management means that it can be routed directly to the right agent from the start.
- Now you need to track the details. For instance, there is the image that appeared on two different driver’s licenses. Or the person in their early 20’s with an AOL account. Or the person who has many email addresses, all of them are similar. All of these issues point to something wrong with the entity that presented them and would lead a company to put them in the suspicious category or reject them.
- Last but not least, communication or transparency. Communication within the compliance team is important, as is communication with regulators. Understanding the market and staying on top of the details is only improved by communicating so that there is a shared knowledge across the team to aid in better understanding the problem and ultimately in creating the approach to address the problem. Keeping an open line of communication with regulator is equally beneficial. For instance, during the pandemic quarterly and monthly reports are still due for some businesses. However, they still require notarization. An open line of communication let Mercari and the regulator contact agree that they would submit their reports down the road with notarization would be possible.
In rapidly changing times, a nimble compliance organization is key to help ensure that fraud doesn’t run rampant and to ensure that customers’ still trust the business. Understanding trends and adjusting fraud models to compensate ensures that everyone is protected when fraud strikes. Open communication increases the smarts of the team and helps refine models based on what analyst are seeing. The right AML platform provides the ability to react quickly, track the details involved with every client interaction and to operationalize the model so that the business is not harmed by fraudsters.
Acuant Compliance has a powerful AML platform across KYC, KYB, Transaction Monitoring and Sanctions/PEPs Screening. Our patented digital identity technology (eDNA®) powered by machine learning helps produce highly accurate results that help you find the good guys you want to do business and avoid the bad guys that will harm your clients and your business.